The History of Enterprise Funds

The History of Enterprise Funds

After the fall of the Berlin Wall in November 1989 and the collapse of the Soviet Union on December 25, 1991, 29 countries in the former Eastern bloc began the transition process from centrally-planned to market-based economies. Realizing that these new states lacked the financial sector capacity necessary to support this historic transition, the United States Congress authorized nearly $1.2 billion for the US Agency for International Development to establish ten new investment funds, collectively known as the “Enterprise Funds,” covering 19 countries in Central and Eastern Europe and the Former Soviet Union.

For each fund, USAID identified and the White House designated an independent Board of Directors to serve on a pro bono basis and guide the Fund’s strategy and provide supervisory oversight. Although many challenges were encountered, including slow starts and organizational difficulties, after 20 years of operations throughout Europe and Eurasia, collectively these ten Enterprise Funds have been successful both in accomplishing their original economic development objectives and achieving substantial financial returns, although there has been significant variation in the performance of individual funds.

Until recently, the Enterprise Fund model has not been replicated within USAID as an economic development tool. However, in early 2011, the events characterized as the “Arab Spring” led to a renewed interest in the potential use of this model in the Middle East as well as in other countries undergoing economic and political transitions.

In May 2011, Former President Barak Obama announced that he would seek authority to create an Enterprise Fund to promote the development of the Egyptian private sector and catalyze investment in Egypt’s promising SMEs. Upon authorization and following the Enterprise Fund model, in 2013 the United States launched the Egyptian-American Enterprise Fund (EAEF), a private corporation seeded with US government funds to promote the development of the Egyptian private sector.

The Impact of Enterprise Funds

The United States’ efforts to promote a stronger business climate in Egypt are best achieved in cooperation with strong partners. Just as prior Enterprise Funds successfully created parallel private investment funds to co-invest in investment opportunities, the Egyptian-American Enterprise Fund will create similar funds to attract sovereign and private investment. Sovereign governments can play a critical role in facilitating co-investment by offering to match US government funds and making introductions to local private investment pools that may also be interested in co-investment opportunities.

Enterprise Funds are one of few development programs to achieve sustainable economic development impacts while leveraging additional investment resources, generating significant program income to endow long-term host country Legacy Foundations, and ultimately returning a significant portion of their original grant funds to the US Treasury.

The following is a summary of the substantial economic and development impacts provided by the Funds as of September 30, 2012:

$1.2 billion of USAID/US government funding has been invested in developing funds in 19 countries

$1.7 billion of net proceeds realized from successful investments have been reinvested by the Funds, allowing them to leverage the use of their initial funding

$6.9 billion of private capital was raised from outside the US government based on the convincing value proposition of the Funds

A total of $9.8 billion in capital has been raised from all sources over the lifetime of the Funds

Significant development capital has been provided to SMEs and entrepreneurs operating in early-stage transition countries where private investment capital was limited or non-existent. This contribution has helped create environments in which the culture of private enterprise could flourish.

EAEF Milestones

In 2013, US Congress established the Egyptian-American Enterprise Fund as a private corporation seeded with up to USD 300 million to promote development and reform of the Egyptian private sector. Over the course of four years, the Fund has stayed on track to fulfill its mission by investing in three promising companies and one local venture capital fund, with plans to support additional Egyptian-led funds and companies.

MAY, 2011

OCTOBER, 2012

MARCH, 2013

JUNE, 2015

JULY, 2015

NOVEMBER, 2015

MAY, 2016

JULY, 2016

SEPTEMBER, 2016

March 2017

August 2017

November 2017

MAY, 2011

The US State Department champions an initiative to establish the Egyptian-American Enterprise Fund and help restore the Egyptian economy.

OCTOBER, 2012

James A. Harmon is appointed Chairman of the EAEF.

MARCH, 2013

US Congress authorizes the creation of the EAEF as a private corporation seeded with up to USD 300 million. The EAEF Grant Agreement is signed.

JUNE, 2015

JULY, 2015

The EAEF leads a consortium of international investors to finance the first and largest exit of a fintech company, Fawry, for USD 100 million, including EAEF’s investment of USD 20 million.

NOVEMBER, 2015

The EAEF acquires a majority stake in leading consumer finance company, Sarwa Capital. The investment included a USD 20 million capital injection.

MAY, 2016

The EAEF makes its first investment in an early stage company by investing USD 1.2 million in the tech-healthcare startup SmartCare

JULY, 2016

The EAEF announces its first investment in a venture capital fund, seeding the managers with USD 10 million to launch Algebra Ventures. The EAEF announces its plan to seed an SME-focused fund, TCV, with USD 10 million.

SEPTEMBER, 2016

The EAEF reaches financial close on its investment in Algebra Ventures.

March 2017

EAEF reaches financial close on its investment in TCV.

August 2017

The EAEF alongside Egypt Ventures and IFC invest EGP 10 million in Flat6Labs’s EGP 100 million Cairo fund that will directly support 100 early-stage start-ups in Egypt